Gabon's fiscal surplus is forecast to improve in 2011 owing to buoyant oil revenue-its primary driver-before narrowing in 2012 on lower oil prices, ambitious public investment plans and costly populist concessions that would increase current spending. The draft 2011 budget submitted to the state council for review in December, full details of which remain unavailable, sees spending increase from CFAfr2.2trn (US$4.4bn) in the supplementary 2010 budget to CFAfr2.37trn, funded by buoyant international oil prices. Fulfilling government rhetoric to invest in infrastructure and development, capital spending will accelerate faster than current spending. The latter will still grow strongly, however; further to an enlarged public payroll, trade union-appeasing tax cuts and price caps on various consumer essentials came into effect in January, following the bread subsidy implemented in October in response to higher wheat prices. The president has also stated his intention to clear long-standing arrears to the private sector, increasing borrowing from local banks to CFAfr911bn (US$1.9bn) to fund such payments. The public payroll audit will generate some efficiency gains.

The government intends to finance spending through higher oil and other extractive sector receipts. Yet, despite higher current spending, the government is unlikely to achieve its overall spending goals owing to limited structural capacity to implement capital spending plans. Reform will improve both revenue collection and budget execution. The historically strong fiscal surpluses should remain relatively low over the forecast period, coming in at 5.2% and 4.5% of GDP in 2011 and 2012 respectively.